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#57037 - 01/28/03 03:42 PM Re: jewelry as loan collateral
Sponge Steve Offline
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Sponge Steve
Joined: Jun 2002
Posts: 299
Midwest
In the age of stock certificates being the only means to identify ownership the only way to perfect against stock was to take possession. A UCC filing against stock certificates then was meaningless.

As Paul points out, if the collateral is stuff the bank cannot practically take possession of the way to perfect is to UCC file. You start getting into gray areas when the item is large. Would a gun collection in possession of a consumer be best perfected by UCC or by possession? I would argue by possession. Would a Renoir hanging on the wall be best perfected by possession or UCC? I would say by possession. A 1965 Cobra? Fortunately such a vehicle would be titled so lien on title is the way to go.

Perfection protects against the claims of 3rd parties. If it's in the bank's possession it would be pretty tough for a 3rd party to claim it's theirs. The UCC says a possessory perfection beats a filing perfection unless the filing perfection is done in accord with another statute. Thus, if the diamond is pledged to one lender who does a UCC filing with no possession and the borrower goes to a pawn shop and surrenders the diamond to the pawn shop the pawn shop wins as they have possession. On the other hand, if the borrower pledges a car to a bank that merely takes possession and stores it in the bank's garage and another lender later advances funds and files a lien on the title to that same car, the latter lender wins in a fight as the latter bank followed another statute that says perfection by lien on title was the way to go.

State law probably does not address how to perfect a lien against a Renoir or a gun collection so possession obtained by another lender is going to beat the bank that merely filed a UCC.

In Michigan we have an issue with snowmobiles being untitled goods. A UCC will protect against a 3rd party buyer (we hope) but if another bank took possession of the snowmobile as collateral the UCC lender would likely lose. This is a bit ridiculous example as no bank is going to take possession of a snowmobile but it could happen.

Ag bankers know they have to follow other weird rules on how to perfect against crops, hogs and other livestock. Absent those perfection rules the only way to perfect would be to take possession. How do you take possession of hundreds of acres of growing plants? Who wants possession of 300 hogs?

If there is no other statute in your state that addresses how to perfect, take possession.
Last edited by Steve White; 01/28/03 03:46 PM.
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Sponge Steve, CRCM, CBA Opinions expressed are mine and not my employer's

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#57038 - 01/28/03 04:44 PM Re: jewelry as loan collateral
Anonymous
Unregistered

The only way to perfect your lien in this type of collateral is by POSSESSION. It is like a stock certificate, you either have possession from the individual or an acknowledged control agreement from a broker. Customer does not keep it with him.

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